Bolsonaro wants to include ICMS in fuel PEC to pressure governors

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The proposal by the Jair Bolsonaro government (PL) for the temporary cut of taxes on fuel and electricity, without the need for compensation measures, should also reach state taxes.

Government interlocutors informed the leaf that the text of the PEC (proposed amendment to the Constitution) under preparation should release all entities of the Federation to reduce the tax burden on fuels — which includes ICMS (Tax on Circulation of Goods and Services).

The inclusion of this device is a way of putting pressure on governors, with whom Bolsonaro has been fighting an intense battle over alleged guilt for the increase in the price of gasoline, diesel and ethanol.

The Chief Executive argues that the governors do not accept giving up the ICMS tax on fuel and that this is a determining factor for the price at pumps to remain high.

Sponsor of the PEC, Bolsonaro intends to zero federal taxes on fuel and electricity, at a time when inflation bothers consumers’ pockets, which hinders the president’s intention to seek a second term.

“We have a proposal to amend the Constitution that is being negotiated so that we can have the possibility of zeroing fuel taxes, PIS/Cofins. fair (20), in his weekly live.

Assistants to the representative expressed concern that a PEC by the Executive in this sense violates electoral legislation, which prohibits the granting of certain benefits in the year of dispute. Therefore, an alternative currently being debated is for the text to be presented to Congress by an allied parliamentarian, possibly in the Senate.

The zeroing of PIS/Cofins rates on fuel alone should drain BRL 50 billion from federal revenue.

Under the current rules of the LRF (Law of Fiscal Responsibility), the government would need to provide increases in other taxes to compensate for the loss. The PEC, however, would make it possible to override this requirement.

Governors would also be relieved of the obligation to compensate for lost revenue. With broad permission for states to follow suit, the behind-the-scenes assessment is that governors who oppose the federal government will be at a crossroads.

They will need to decide between following the policy of the President of the Republic, aligning themselves with the federal government on this issue and still giving up revenue; or maintain the current level of taxes, assuming the political wear and tear on the population.

Last year, states received hefty transfers from the federal government to help fight Covid-19. With this and also with the resumption of collection, in the wake of the reopening of the economy, the states accumulate a surplus of R$ 87.3 billion in the year until November – which, in the evaluation of the team of Minister Paulo Guedes (Economy), gives conditions to adhere to the tax reduction.

During the negotiations on this point of the PEC, government officials raised questions about the risk of the measure benefiting governors who oppose Bolsonaro. The pressure strategy, however, ended up prevailing.

Bolsonaro turned the value of the ICMS into a clash with the governors, who always contested the Bolsonarista thesis that the state tax was the great villain of the boost in fuel prices.

The states then decided to freeze the value of ICMS between November 2021 and the end of this month, by maintaining the so-called PMPF (Weighted Average Price to Final Consumer) at the levels in force on November 1, 2021.

However, this did not prevent further price increases, as Petrobras’ readjustment policy follows the prices of a barrel of oil on the international market, in addition to the dollar.

Last week, governors began to discuss ending the freeze. According to the president of Comsefaz (National Committee of State Finance Secretaries), Rafael Fonteles, it has been proven that price volatility does not depend on ICMS.

“The states made their contribution to reducing the volatility of fuel prices, which was not done by Petrobras or the federal government. And it has been proven that this volatility does not depend on the value of the PMPF or the ICMS rate, which has no change for several years”, said he, who is secretary of Piauí, governed by Wellington Dias (PT).

The signal aroused criticism from the president. “Unfortunately, still in a pandemic, the governors announce the defrosting [descongelamento] of the ICMS on fuels. How much will a liter of gasoline go to? R$ 8,00?”, questionou Bolsonaro no Twitter na segunda-feira (17).

The discussion about ICMS also triggered a reaction at the National Congress summit. The president of the Chamber of Deputies, Arthur Lira (PP-AL), demanded that the president of the Senate, Rodrigo Pacheco (PSD-MG), vote on a bill that establishes a fixed amount for the collection of state tax.

“The Chamber dealt with the bill that mitigated the effects of fuel increases. Sent to the Senate, it became an ugly duckling and Geni was part of the market class”, wrote Lira. The president of the Chamber has participated in the PEC negotiations to reduce taxes.

In the current scenario, if the states actually decide to unfreeze the collection of the tax on fuels, the tendency is for prices at the pump to increase, since ICMS will be calculated on a larger basis. Each state sets its rates.

ICMS rates on gasoline are currently between 25% and 34%. In the case of ethanol, between 16% and 32%. The charge on diesel is 12% to 25%.

Another factor that could put pressure on in the coming months is the price of a barrel of oil, which is close to US$ 90 and could reach US$ 100, according to market forecasts.

In the federal government, the assessment is that it is not possible to “cross your arms” in the face of such a vertiginous increase in prices. The issue has been treated not only as a sectoral issue, but also as an economic and social one.

In addition to the repercussions of the increase in fuel prices on the pockets of Brazilians, interlocutors of Guedes express concern about inflation, which ended 2021 at a high of 10.06% — the highest result since 2015, during the Dilma Rousseff (PT) government.

Guedes’ interlocutors say that the minister is not opposed to cutting taxes, since federal revenue has also improved. In the year through November, federal government revenues rose 18.13% above inflation.

The waiver of revenue from the cut in taxes should fit within the fiscal target for 2022, which allows for a gap of up to R$170.5 billion. The Budget approved by Congress foresees a deficit of R$ 79.4 billion, which indicates that there is room to accommodate the loss of revenue. A bigger hole, however, means an increase in public debt.

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